oil prices

Oil prices experienced a decline on Monday due to mounting apprehensions about a potential global economic slowdown and the possibility of further interest rate increases by the U.S. Federal Reserve. These factors counterbalanced predictions of reduced supplies and output cuts by OPEC+.

The fear of a more pronounced economic deceleration impacting fuel demand intensified following Friday’s data, which revealed that U.S. inflation continues to surpass the central bank’s 2% target, fueling expectations of additional interest rate hikes.

At 0800 GMT, Brent crude futures saw a marginal drop of 4 cents, settling at $75.37 per barrel, following a 0.8% increase on Friday. Similarly, U.S. West Texas Intermediate crude slipped by 9 cents to $70.55 per barrel, after registering a 1.1% gain in the previous session.

During the second quarter, both Brent and WTI experienced negative performance, with Brent marking its fourth consecutive quarterly decline and WTI recording a second quarterly drop. The slowdown in the world’s top two economies, the U.S. and China, contributed to this trend.

In a note, analysts from National Australia Bank expressed concerns over the demand outlook, attributing it to the hawkish commentary on interest rates. The anticipation of higher interest rates can strengthen the U.S. dollar, making commodities relatively more expensive for holders of other currencies, thereby dampening oil demand.

In June, China, the largest crude importer globally, witnessed a slowdown in factory activity growth, coupled with diminished sentiment and recruitment due to sluggish market conditions, according to the Caixin/S&P Global private sector survey.

Nevertheless, some analysts anticipate a tightening of supplies in the second half of the year, leading to potential price increases. This expectation arises from Saudi Arabia, the top exporter, pledging an additional 1 million barrels per day output cut in July, alongside the gradual replenishment of the U.S. Strategic Petroleum Reserve.

PVM analyst Tamas Varga asserted, “Their mood will probably brighten in the near future. Oil demand is set to jump to its highest level ever in the second half of the year.”


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